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The Water Tunnel Boondoggle

Experts say the eye-popping costs of Governor Brown’s plan to build two giant water tunnels far outweigh the financial benefits. And taxpayers may be left holding the bag.

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Westlands' general manager Tom Birmingham was unable to answer most of the farmers' questions head on, stressing that negotiations with the state and other water agencies that would benefit from the giant water tunnels were still ongoing. He was clear about one thing, however: Westlands will only move forward with BDCP if the project guarantees a steady and sizable water supply. "How in the world do you expect to ever cover the capital costs associated with this project if you can't deliver water to the only contractors who pay for it?" Birmingham said, referring to a past conversation he had with members of the Bureau of Reclamation. He later added: "There's a point at which we have to say, 'No, we're not going forward.'"


Westlands' lukewarm support for the water plan is understandable. Building the tunnels is expected to cost San Joaquin Valley water districts an estimated $800 million a year in debt payments, with Westlands covering between 50 and 65 percent of the total, according to Westlands officials. Meanwhile, farmers would only see $134 million in increased agricultural revenues a year from the plan, according to BDCP documents, leaving a glaring $660 million financial shortfall.

"The tunnels don't generate a water supply that's nearly as valuable as the costs," explained the University of the Pacific's Michael, one of the leading economic forecasters in the state. "I don't see how anyone who actually has the interest of the ag industry in California at heart can be supporting this project .... It will strangle farmers with debt."

Michael has strong opinions about the economic pitfalls of the tunnels. Paying for them, he said, could make the cost of irrigation water "crazy," "nonsensical," and "absurd." He estimates that water prices in parts of the San Joaquin Valley could increase five-fold — to roughly $1,000 per acre-foot — if the plan moves forward. During some years that number could climb as high as $2,000 an acre-foot — a rate that would make the farming of most crops financially impossible.

Why, then, does Westlands continue to back a plan — albeit tentatively — that could put its farmers out of business? While district officials did not respond to repeated requests for comment, Westlands representatives have said that the region's tenuous water supply is unsustainable and that something needs to change. "We cannot live in a world that has 40-, 60-, 90-percent reductions in water supply on a regular basis," Jason Peltier, Westlands' chief deputy general manager, said in an interview last year.

Yet while it's true that the BDCP could make water cutbacks less severe, many economists and environmentalists are troubled by what might happen if the plan doesn't pan out financially. Under the BDCP, bonds would likely be floated to pay for the construction of the tunnels. But if Westlands or other water districts were to later default on the debt payments, it's not exactly clear what would happen. The state and the water districts have not yet hammered out the legal terms of who would be liable to pay back the bonds. Some legislators fear it could turn out to be state taxpayers.

"If costs significantly increase, as I believe they will, water contractors and ratepayers may not be able to carry the financial burden," warned Contra Costa County Assemblymember Jim Frazier at an Assembly oversight hearing earlier this year. "This puts us, the taxpayers, at risk."

Furthermore, Westlands has a history of not paying its bills. For example, as of 2008 (the latest year for which data is available), Westlands still owed about 80 percent of its $350 million debt on the federally run Central Valley Project, which broke ground three quarters of a century ago.

Some observers of the process, meanwhile, speculate that San Joaquin Valley farmers might not end up using the water on crops at all, but instead would sell it at higher prices to urban users and oil companies. As odd as that might seem, arcane state laws and recent legislation allow farmers to purchase subsidized water intended for agriculture and put it on the open market for sizable profits. Such revenues, in turn, could then help pay the bond debt from the construction of the tunnels.

Over the years, one of the biggest beneficiaries of farm-to-city water sales has been San Joaquin Valley farming magnate Stewart Resnick. One of California's largest growers, Resnick has made a fortune, not by tending his 115,000 acres of almonds, pistachios, and pomegranates in Kern County, but by selling taxpayer-subsidized water to the highest bidders. "I don't like to go to the Chinatown conspiracies," said Jon Rosenfield, a conservation biologist with the Bay Institute and a critic of the BDCP, referring to the classic 1974 film about California's water wars. "But the only thing that makes sense at this point is if [farmers] turn around and sell their water to urban users at a higher price."

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